The argument against online sales tax

In this guest post today, Martin Bysh, co-Founder of Huboo argues strongly against the introduction of an online sales tax in the UK. Martin has a pretty strong viewpoint as to why an online sales tax would be a bad thing, although many high street supporters argue it’s essential if our town centres are to survive – the suggestion is that rates for shops could be reduced if the tax burden is redistributed to online retail.

Here’s what Martin had to say:

The suggestion of higher taxes for online retailers shows economic illiteracy on behalf of the Government. They are assuming that ecommerce businesses can afford a higher tax; the reality is far different.

The narrative that online retailers are making big bucks has got to stop. High street retailers have rent and rates to pay – but equally they have benefits such as passing footfall (which is essentially free marketing) and the fact that once you have your space on the high street it’s unlikely that the same street will have 10 other retailers selling the exact same products.

Online is completely different. If you’re online, competition is fierce. Just search for ‘dog collars’ on Amazon and multiple companies are offering the same thing, all next to each other, on the same page. You would never see that on a high street.

Ecommerce retailers don’t have rent to pay but they have fulfilment, marketplace and VAT costs. As a rule of thumb fulfilment will cost 20%, so if you sell a product for £20 shipping will typically cost £4 depending on size and weight of the product. If you list your product on Amazon or eBay it’s again around 20% that will go to the marketplace (and then there is the battle to keep yourself on page one or two so you actually get seen). Then there is 20% VAT costs.

In addition, there are the marketing costs which without passing footfall are crucial – you have to be seen to have a chance of making a sale. Google adwords, SEO, marketplace advertising; the list is endless and is often the highest single cost besides production.

The manufacturing costs for the products are no less for an online retailer than they are for a high street retailer. So the suggestion that ecommerce retailers can somehow shoulder higher taxes just doesn’t add up and shows a real lack of understanding. Most businesses we work with have a profit margin of under 10%; we’re talking about ecommerce here which involves physical products having to be made, marked, shopped and sold on expensive marketplaces.

If the higher online taxes go ahead the result will be one of two things; either ecommerce businesses will have to fold which will impact jobs and livelihoods or the costs will be passed onto the consumer, at a time when we’re facing rising living costs.

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